Global Logistics

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CHAPTER 13 Global Logistics
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Becton Dickinsons Worldwide Sources
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International Logistics

• Changes to political landscape affect logistics
• The end of Soviet rule in Eastern Europe
• EU economic integration
• Nontariff barriers-a rule that has the effect of
  reducing imports
• Restrictions on truck traffic, forcing freight
  onto rail and water
• NAFTA
• Multinational firms

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Comparison of Domestic and International
Logistics
Domestic
International
Estimated at 16 of world GDP today Mainly ocean
and air, with significant intermodal
activity Higher levels, reflecting longer lead
times and greater demand and transit uncertainty
Heavy reliance on forwarders, consolidators, and
customs brokers High, owing to differences in
currencies, inflation, levels and little recourse
for default High, owing to longer and more
difficult transit, frequent cargo handling, and
varying levels of infrastructure development Many
agencies involved (e.g., customs, commerce,
agriculture, transportation Significant
paperwork the U.S. Department of Commerce
estimates that paperwork cost for an average
shipment is 250 Voice and paper costly and often
ineffective movement toward electronic
interchange but variations in standards hinder
widespread usage Cultural differences require
significant market and product adaptation
Cost Transport mode Inventories Agents Financial
risk Cargo risk Government agencies Administratio
n Communication Cultural differences
About 10 of U.S. GDP today Mainly truck and
rail Lower levels, reflecting short-order,
lead-time requirements and improved transport
capabilities Modest usage, mostly in
rail Low Low Primarily for hazardous materials,
weight, safety laws, and some tariff
requirements Minimal documentation involved
(e.g., purchase order, bill of lading,
invoice) Voice, paper-based systems adequate,
with growing usage of electronic data interchange
and Internet Relative homogeneity requires little
product modification
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International Market Entry Strategies

• Exporting
• Licensing
• Joint ventures

• Ownership
• Importing
• Countertrade

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Major Participants in an International Logistics
Transaction
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The Global Logistics Environment
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Responding to Competition with Logistics

• Increasing the number of cross-national
  partnerships, alliances, mergers, and/or
  acquisitions.
• Expansion of many previously domestic-based
  organizations into international markets.
• Development of global communications networks
  operating 24 hours a day.
• Establishment of country and regional warehouses
  in major world markets.
• Identifying and developing relationships with
  logistics service providers that offer
  transportation, storage, materials handling, and
  other services on a global basis.

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Exporting Companies

• Export distributor
• Customs house broker
• International freight forwarder
• Trading company
• Non-vessel-operating common carrier (NVOCC)

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Documentation

• Country of Origin
• Bills of Lading
• Packing Lists
• Customs
• Certified Shippers - C-T PAT

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Free Trade Zones

• gt 225 in the US
• postpone payment of customs or taxes until item
  is sold
• avoid customs completely if consolidated and
  re-exported

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Ocean Shipping

• Types of Ocean Cargo
• Petroleum
• Dry-bulk cargoes-grain, ores, sulfur, sugar,
  scrap iron, coal, lumber, logs in vessel loads
• Containers
• Shipping conferences and alliances pool resources
  and extend market coverage

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Ocean Shipping

• Types of Vessels
• Containerships
• Lighter aboard ship (LASH) vessels
• Roll On-Roll Off (RO-RO) vessels
• Tankers
• Specialized vessels

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A RO-RO Vessel in Jacksonville Florida
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International Trade Inventories

• May vary in small ways from country to
  countryproducts may be tailored to fit
• Less is needed (than in U.S.) to serve any one
  country
• Return items are impossible to accommodate
• Import and export quotas affect value of
  inventories
• Currency and language differences

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CHAPTER 15 Organizing for Effective Logistics
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Traditional Logistics Management
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Traditional Logistics Management cont.
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Control Exercised By Logistics Executives Over
Selected Logistics Functions
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Organization Design for Logistics as a Function
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Organization Design for Logistics as a Program
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Components of Corporate and Logistics Mission
Statements

• Targeted customers and markets
• Principal products/services
• Geographic domain
• Core technologies

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Components of Corporate and Logistics Mission
Statements (cont.)

• Survival, growth, and profitability
• Company philosophy
• Company self-concept
• Firms desired public image

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Ways of Improving Logistics Organizational
Effectiveness

• Strategic goal setting
• Resource acquisition and utilization
• Performance environment
• Communication process
• Leadership and decision making
• Organizational adaptation and innovation

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Logistics/Supply Chain Organization
A good organization structure does not by itself
produce good performance--just as a good
constitution does not guarantee great presidents,
or good laws, or a moral society. But a poor
organization structure makes good performance
impossible, no matter how good the individual
managers may be. To improve organization
structurewill therefore always improve
performance. Peter F. Drucker
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Activity Fragmentation in the Supply Chain
Responsibilities
President
Marketing
Finance
Operations

• Distribution channels
• Customer service
• Field inventories
• Revenue

• Cost of capital
• ROI
• Inventory carrying costs

• Supply alternatives and supply costs
• Warehousing
• Purchasing
• Transportation

CR (2004) Prentice Hall, Inc.
15-4
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Activity Fragmentation in the Supply Chain
(Contd)
Objectives
President
Marketing
Finance
Operations

• More inventory
• Frequent short production runs
• Fast order processing
• Fast delivery
• Field warehousing

• Less inventory
• Cheap order processing
• Less warehousing

• Long production runs
• Lowest cost routing
• Plant warehousing

15-5
CR (2004) Prentice Hall, Inc.
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Activity Fragmentation in the Supply Chain
(Contd)

• Reasons for fragmentation
• Lack of understanding of key cost tradeoffs
• Traditions and conventions
• Other areas considered to be more important to
  the firm than logistics
• Organization structure can be in an evolutionary
  state
• Benefits of fragmentation elimination
• Encourages important cost tradeoffs to be
  effected
• Focuses on an important, defined area by top
  management
• Sets the structure within which control can take
  place

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Organizational Choices

• Informal structure
• Persuasion of top management
• Coordinating committees
• Incentive arrangements
• Profit sharing
• Cross charges
• Semi-formal structure
• Matrix organization
• Formal structure
• Line--creates value in products, therefore it has
  operating status
• Staff--provides assistance to the line
  organization

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Logistics Matrix Organization
15-8
CR (2004) Prentice Hall, Inc.
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What is Systems Analysis?

• Systems analysis refers to the orderly and
  planned observation of one or more segments in
  the logistics network or supply chain to
  determine how well each segment functions.

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General Questions

• Why do we perform each task?
• What value is added by it?
• Why are the tasks performed in the order they
  are?
• Can we alter the sequence of the processing steps
  to increase efficiency?
• Why are the tasks performed by a particular group
  or individual?
• Could others perform this task?
• Is there a better way for the system to operate?

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Problems in Systems Analysis

• Multiple business functions are impacted.
• There are trade-offs among conflicting
  objectives.
• Logistics system impacts are difficult to
  precisely evaluate.
• There are business issues unique to each
  logistics system.

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Systems Integration Logistics Activities
Outside the Firm

• Third-party, or contract, logistics
• Integrated service providers
• Monitoring third-party performance

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Reverse Logistics
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What Drives Reverse Logistics and Returns?
Wal-Mart Costs up to 7-8 of costs of goods!
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Impacts
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Impacts
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SCOR and Returns
Suppliers suppliers
Customers customers
Processes associated with receiving returned
products for any reason. These processes extend
into post-delivery customer support. The
process includes communication between the
customer and last known holder or known return
center and the generation of associated
documentation.
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Impacts of Reverse Logistics

• Forecasting
• Carrying costs
• Processing costs
• Warehousing
• Distribution
• Transportation
• Personnel
• Marketing

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Reverse Logistics - What is it?The Commercial
Perspective

• Reverse Logistics is the process of moving
  products from their typical final destination to
  another point, for the purpose of capturing value
  otherwise unavailable, or for the proper disposal
  of the products.

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Typical Reverse Logistics Activities

• Processing returned merchandise - damaged,
  seasonal, restock, salvage, recall, or excess
  inventory
• Recycling packaging materials/containers
• Reconditioning, refurbishing, remanufacturing
• Disposition of obsolete stuff
• Hazmat recovery

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Reverse Logistics - New Problem?

• Sherman
• Montgomery Wards - 1894
• Recycling/remanufacturing in 1940s
• World War II - 77,000,000 square feet of storage
  across Europe with over 6.3 billion in excess
  stuff
• Salvage and reuse of clothing and shoes in the
  Pacific Theater World War II

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Costs - above the cost of the item

• Merchandise credits to the customers.
• The transportation costs of moving the items from
  the retail stores to the central returns
  distribution center.
• The repackaging of the serviceable items for
  resale.
• The cost of warehousing the items awaiting
  disposition.
• The cost of disposing of items that are
  unserviceable, damaged, or obsolete.

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Costs

• Process inbound shipment at a major distribution
  center 1.1 days
• Process inbound return shipment 8.5 days
• Cost of lost sales
• Wal-Mart Christmas 2003 - returns 4 Days of
  Supply for all of Wal-Mart 2000 Containers
• PalmOne - 25 return rate on PDAs

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Is it a problem?

• Estimate of 2004 holiday returns 13.2 billion
• of estimated 2004/2005 holiday returns 25
• Wal-Mart 6 Billion in annual returns 17,000
  truck loads (gt46 trucks a day)
• Electronics 10 Billion annually in returns
• Personal Computers 1.5 Billion annually
  approximately 95 per PC sold
• 79 of returned PCs have no defects

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Returns an Operations Perspective

• Emerging industry in infancy stage
• Many skill sets involved, deep knowledge of some
  skills
• Person on Warehouse floor needs tools
• No Schooling for Reverse Logistics
• No rules or standards
• No methods
• Few Best Practices
• Few comparisons
• How do we know WHAT we should be doing?
• How do we know HOW WELL we are doing?
• Where are the opportunities to improve PROFITS?

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Some Key Operational Challenges Operations people
face

• So many people, from so many departments, at so
  many locations, from different companies, needed
  to process one return
• For the group managers, returns is a small,
  annoying part of their group Most of a Return
  is someone elses problem /fault
• Turn Around Time is often very slow and
  difficulties often arise that add days to the
  processing of a Return

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Key Operational Challenges - 2

1. Difficulties arise with process Hand-offs between
   groups, Outsourced providers and multiple data
   systems staff is continually reconciling
2. Collect little data about a Returned unit it
   often has errors, so it may get handled
   incorrectly or we have to believe what the
   customer tells us

1. Often time consuming or difficult to track down
   the status of a unit
2. Stressful work environment due to frequent issues
   that need to be resolved ASAP
3. Senior staff spend considerable time solving
   processing problems or escalated issues

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Best Practices

• All Returns under control of ONE GROUP
• Very Defined Business Processes
• Process Mapping author of text found that
  companies that develop process maps saved up to
  40
• Map all processes and add timelines
• Automate processes where possible

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Why are the number of returns increasing?
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(No Transcript)
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Cell Phone Returns

• Nearly 75 of returned phones are determined to
  have
• No Trouble Found
• 63 of returned phones are resold as is
• More than 16 hours of use and phone is no longer
  new
• High returns rate impacts Original Equipment
• Manufacturers for products under warranty
• Resold phones are used as scrap or warranty
  replacements
• California legislation requires retailers to
  establish system
• for collection, for reuse, recycling or disposal
  at no cost to
• the consumer

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Source DHL Presentation to Reverse Logistics
Association, Feb 2007
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Source DHL Presentation to Reverse Logistics
Association, Feb 2007
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NASA Reverse Logistics
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Returns Impact All Operational Facets
Product Development
Marketing
Purchasing
Finance
Logistics
Production
Product Returns
Processes all different Groups Authorize,
Receive, Ship, Credit, Inventory, Inspect, Test,
Repair, Disposition Multiple Locations Outsourced
Parties Each with - their own processes
- their own priority
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Supply Chain Integrity

• What is it?
• Why is it important?

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Supply Chain Integrity

• Perfect Order Fulfillment
• Information Security
• Parts integrity Boeing 787
• Product integrity Mattel
• Shipping Integrity
• Inventory Integrity
• Cornerstone of supply chain leadership

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Questions??
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Summary

• Global Logistics controllable and
  uncontrollable factors
• Impacts on global inventories
• Traditional vs. Non-traditional organizations
• Functional vs. Program design
• Reverse Logistics impacts, causes, best
  practices
• Supply Chain Integrity

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Thank you for your time

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